Nepse to allow stockbrokers to float margin loans

Nepse to allow stockbrokers to float margin loans

Stockbrokers will also be allowed to extend margin lending soon as Nepal Rastra Bank (NRB) has endorsed the ‘Guidelines on margin lending facility from stockbrokers’ prepared by Nepal Stock Exchange (Nepse).

NRB has approved the guidelines on condition that the brokerage firms take its approval first. Nepse had sought NRB’s approval to start margin lending through broker firms as per instruction of Securities Board of Nepal (SEBON) – capital market regulator.

As per Chandra Singh Saud, general manager of Nepse, next board meeting of Nepse will discuss on necessary preparations to start margin trading based on aforementioned guidelines. Nepse will call the broker firms interested in providing margin lending and ask them to take approval from NRB, as per Saud.

As per the guidelines, the stockbroker that is allowed to provide margin lending facility by the central bank can do so for the securities of only those companies allowed by Nepse. As per the guidelines, the broker firms can lend up to two times of the net worth of their company and up to 50 per cent of the market value of the collateral. Broker firms can make margin call only if the market value of the stocks dips by 40 per cent of the collateral value.

Both broker firms and investors had been seeking this facility since long. However, the regulatory authority had not taken any action to open margin trading through broker firms. It was only last year that SEBON had asked Nepse to prepare the guidelines for margin lending. SEBON had approved the guidelines prepared by Nepse some three months back and asked Nepse to take approval from NRB before extending such facility to brokers.

The Stock Brokers’ Association of Nepal (SBAN) has hailed the margin lending facility for brokers citing it will bring vibrancy in the secondary market and facilitate investors and stabilise the market.

Stockbrokers can now avail loans from banks and financial institutions and issue margin loans to stock investors. As per the mandatory provision of SEBON, broker firms have already raised their paid-up capital to Rs 20 million.

Till date, only banks and financial institutions (BFIs) were allowed to extend margin lending. However, due to the ceiling imposed on providing margin lending for BFIs, small investors have been unable to get loans against shares as collateral.

NRB has further instructed the BFIs to bring down the threshold of the margin lending to 25 per cent of their core capital from the earlier 40 per cent of the core capital. The monetary policy of the current fiscal has narrowed down the exposure of the BFIs in margin loans and the recent directives of NRB has asked the BFIs to bring down the loan amount to 25 per cent of the core capital till the first half of fiscal 2018-19.